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Letter: Getting off the funding cliff

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With some painful cuts and shifts, the state worked to close the $1 billion budget deficit last year. It wasn't pretty, and districts have felt the results of those shifts.

Not to be the wet-blanket Eeyore, but finance officials around the state are already looking at the next session. And they're seeing a mighty cliff that schools, cities and counties are heading toward.

For those who think that the state will just cut a little here and shift some there as in past years, think again.

This year is not like last year. Or any year. The Minnesota Office of Management and Budget projects a $6.2 billion deficit in 2011. And Minnesota has shifted just about all it could shift. It has cut about all it can cut. And federal stimulus money isn't on the horizon to lower the $6.2 billion estimate. In fact, if interest is added into the deficit, it climbs to $7.7 billion.

This should worry school boards. It should worry counties and cities. It should worry everyone. So to help school board members explain to people just how big of a problem this is, MSBA took every revenue option, budget-cutting option, budget-shift option and tax-increase option to see what it would do to decrease the deficit. Please note that MSBA is not taking a stance on any of these proposals. The ideas are being used so members can see that doing everything may not even close the hole.

Shifting funding to schools from 27 percent to 50 percent

We'll start with ideas that could be approved under a continuation of a "no new taxes" theme. One way the budget was balanced two years ago was to shift state payments of schools into the next biennium. In 2009, Gov. Tim Pawlenty increased the usual 15 percent shift to a 27 percent shift. The result was that many districts scrambled to the MNTAAB pool to do short-term borrowing at low-interest rates. In the long run, it cost school districts money, but not as much as an actual cut.

So what if the Legislature was to increase the shift from 27 percent to 50 percent? How much will that save? Melcher looks to the past biennium when the state shifted an additional 17 percent of school funding to save a one-time $1.2 billion for the biennium. If the state shifted another 23 percent to get to a 50-50 shift for school funding, it would cut about $1.6 billion off the state's debt. Again, this is a one-time fix.

The outcome: Even more districts would be scrambling into the MNTAAB pool to do even more short-term borrowing. Kiss district reserves goodbye. And hope that your district can stay out of Statutory Operating Debt long enough for the state to pay the shift back. With this option, the end result is probably the same -- better to borrow than to suffer an actual cut.

So let's take the savings off the budget deficit.

Our budget deficit has been reduced from $6.2 billion to $4.6 billion.

Adding Racino money to the state's revenues

The 2010 Legislature again saw a Racino bill come up in committee, sponsored by Sen. Dan Sparks of Albert Lea.

Basically, the bill would allow 75 days of live racing and license gambling on those races across the state. If passed, a Racino plan would bring in about $125 million a year, according to Legislative Analyst Tim Strom. That's $250 million over two years.

The outcome has always been clear: strained relations with Native Americans and fears that an increase in gambling could lead to even more problems for families with someone who has a gambling addiction.

But let's say that Racino passes. Let's take the revenue off our deficit.

Our budget deficit has been reduced from $4.6 billion to $4.35 billion.

Cut Local Government Aid completely

Gov. Pawlenty has gone to Local Government Aid several times to cut the budget. Some of those cuts have shown up in cities as drastic cutbacks to firefighters, police, training, drastic reductions in library hours, cutbacks in road patching and snow plowing. The list goes on. Probably the quickest felt by schools is no longer having police liaisons in the schools.

So what if the state were to completely cut all Local Government Aid? Strom estimates the savings would be about $550 million.

Our budget deficit has been reduced from $4.35 billion to $3.8 billion.

Sales tax on clothes

OK, all the cost-cutting ideas are gone. Now, onto the dreaded "T" word. What if we put a sales tax on clothes, similar to the bill DFL Sen. Tom Bakk proposed this year. That would bring in an extra $385 million per year, according to Strom. We'll be optimistic and put it at $800 million over two years.

Our budget deficit has been reduced from $3.8 billion to $3 billion.

Tax the rich

This idea has been floated for many years, but has usually been Dead On Arrival during the era of No New Taxes. But what if we did create a new tax bracket for people who make more than $250,000 a year.

Again, Strom's best estimate for revenue it could bring in: $200 million a year. Over two years, the state would get $400 million.

Our budget deficit has been reduced from $3 billion to $2.6 billion.

Now, we're out of ideas. And we're still more than $2 billion short of closing the budget. One simple solution for the Legislature is to simply put off paying back the original shift. That would save about $1.2 billion. But it simply shoves the problem into the future. However, in these tough times, it's doubtful the Legislature will pay back the shift. So let's take that off the deficit.

Our budget deficit has been reduced from $2.6 billion to $1.5 billion.

If we want to talk true balancing, we've taxed the rich, added sales tax, added Racino money, shifted payments to schools to 50 percent, cut Local Government Aid. What's left? The biggest parts of the state budget: welfare and education. So chances are, the final $1.5 billion won't all come out of K-12 education or all out of human services.

The state has never before resorted to cutting education, because most people know that cutting education is like shooting yourself in the foot. Those cuts may get people by in the present, but will ultimately fail our children and our nation in the future.

But with $1.5 billion to go, how much would have to be cut from education? We'll take a guess that an even 50-50 split will result: A $750 million from human services and $750 million from education. Again, we go to Tom Melcher's rule-of-thumb. For every dollar on the per pupil allowance, it adds up to about $1 million. So if we cut $400 per pupil from K-12 education, we could get $750 million over the biennium -- $400 million each year.

Our budget deficit has been solved.

This is what it takes to close the state's budget gap for the next biennium. This is what our Legislature faces this session. So are you scared now?

MSBA will be pushing for creative solutions that can keep K-12 education from going off the cliff. But at a $400 per pupil reduction, many more districts might be going to four-day school weeks, trying consolidations, closing schools, boosting class sizes, and cutting electives, teachers and programs. That would be a bleak outlook for the future of our children.

The point of this article is not to be doom-and-gloom. The point is to show that if the Legislature enacted every tax increase, revenue enhancer and budget cut that has been proposed in the past two years, it still isn't enough to close the deficit. And that message has to get out to people so they know the upcoming budget deficit is serious.

That's where we need the people of Minnesota to stand up and give representatives ideas of how to bring in more money or find areas to cut that don't sacrifice the state's future. MSBA's Governmental Relations team of Grace Keliher and Kirk Schneidawind will be working to get rid of mandates and give school districts flexibility with their funds.

"One of the best things you can do is to let people know just how big this $5.7 billion deficit is," Schneidawind said. "And start planning now for how your district might survive and how it will look if cuts come education's way."

The next two years are going to test every school district and every city in the state, Schneidawind said. And the result of the 2011 Session will be a high-stakes test like schools have never seen before.

Greg Abbott is MSBA's Director of Communications. To respond to this article, you can e-mail him at gabbott@mnmsba.org.

Greg Abbott

Minnesota School

Board Association

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